Time for a Holiday That Brings Full Employment

Friday’s unemployment figures of 7%, while perhaps slightly more cheerful than expected, still mean that roughly 11 million people are out of work and that the U.S. economic recovery remains stubbornly sluggish. That’s why it is truly the season to take the long-overdue step – remarkably a simple step, really — that would bring over $1.5 trillion in offshore corporate profits home. By removing the Scrooge-like obstacles embedded in the tax code, this exiled cash could be fueling our sputtering American economy instead of creating jobs and investments in China or Vietnam by American multinational corporations.

According to a study by the Alliance for American Manufacturing, 18,000 jobs could be created for every $1 billion in investment. Even if we assume, very conservatively, that only 5,000 jobs are created for every billion dollars invested in the U.S., that would still add 7.5 million new jobs and reduce the current unemployment rate down to about 2 percent. In economic terms that would be equivalent to attaining full employment.

The reason this fiscal fuel doesn’t naturally flow into the U.S. economy is clear — and correctable: Many major corporations are legally keeping that $1.5 trillion overseas, in countries where they pay little or no tax on their profits. Who can blame them? The U.S. tax code encourages this fiscal strategy because profits that stay out of the U.S. are not taxed by the U.S. Consequently, in deference to their shareholders and capitalistic values, multinational corporations have a sound legal reason to keep bundles of their profits overseas rather than bringing them home, where they’d be subject to U.S. corporate taxes of up to 35 percent.

But this kind of money could really fire up the economy. That’s why we need to allow companies to bring that $1.5 trillion in offshore profits back home, tax free, for one time only, and on one condition: All the money must be invested in the U.S. over the next 24 months to create jobs.

This approach, sometimes derisively dubbed a “tax holiday,” may sound like an overly generous gift to corporations. But it’s really a gift to the American economy. Without a holiday, this money would stay offshore forever, as explained by Apple’s CEO Tim Cook in a Senate hearing last May. Furthermore, Cook reaffirmed that given current U.S. tax rates, Apple has no intention of bringing that cash back to the United States. Like other companies, Apple has a responsibility to its shareholders to pay as little as possible in taxes and maximize profits. That’s why I’d rather see us creating 7.5 million more American jobs at home.

Some may say that what I propose amounts to corporate welfare, and would cost Uncle Sam about $500 billion in lost revenue — roughly 35 percent tax on $1.5 trillion in overseas profits. But that is not a real loss. Under the existing tax law that revenue will never be collected because companies like Apple have no reason to bring their profits home. Furthermore, the current system has an unfortunate domino effect in the kind of corporate behavior it fosters. Not to pick on Apple, but its latest example is instructive: It raised a record $17 billion in corporate bonds in 2013 to return cash to its shareholders, in order to avoid paying taxes if it brings overseas profits home. So now Apple will be able to take a tax deduction on the interest it pays to bondholders — and you begin to see the ludicrous cycle we’ve created, with Uncle Sam missing out on both tax revenue from offshore profits and corporate interest deductions.

So let’s break the cycle. Let’s have the one-time tax holiday I propose. It may not be the full solution but it will at the least jumpstart the economy and reduce federal deficit. It will bring billions in profits home, at no cost to taxpayers, and create millions of needed jobs that will themselves generate tax revenue. In the long run, we must transform our tax system instead of reforming it since reforms create more loopholes at the expense of the middle class.